In the past few decades, organizations have warmed to corporate social responsibility and environmental, social, and governance issues. Whether to drive cost and efficiency improvements or to help heal the planet, many companies have adopted sustainability goals such as reducing greenhouse gas (GHG) emissions or committed to even more lofty pursuits, such as becoming net-zero emitters.
While many organizations have sustainability plans, there often seem to be disconnects in putting these plans in motion. Few organizations that have set ambitious goals are on track to meet them.
Companies can find opportunities in their own practices, and they may find even bigger gains in Scope 3 emissions up and down the value stream. However, some challenges get in the way of identifying those opportunities.
Reporting Challenges
Initiatives that aim to reduce GHG emissions or achieve Scope 3 net-zero emissions along the value chain face some obstacles—especially as these initiatives depend on external partners.
For emission-reduction initiatives along the supply chain, companies need data from external organizations. Some organizations may lack a solid foundation of carbon accounting, with ineffective or nonexistent processes to measure GHG emissions. If there is data to gather, organizations need to ensure that data is complete, accurate, timely, and consistent, and captures the required metrics.
In addition, organizations must understand the data to analyze it, knowing which insights they’re looking for, which benchmarks they’re comparing against, and what success looks like. There are also technical considerations, such as the tools to perform the analysis.
If team members are not proficient in these areas, the organization will need to address the skills gap to efficiently gather, analyze, and act on the insights gained from the data.
Organizations also need to consider suppliers. It’s one thing to initiate change within an organization; influencing a third party to participate may be quite another. Organizations must invest a great deal of time and effort to encourage suppliers to take appropriate action, especially when the scope extends beyond Tier 1 suppliers.
Suppliers’ business models may even promote decisions based on economic factors at the expense of environmental factors. Savings structures might encourage bulk purchases that reduce costs but sacrifice sustainability goals, due to the resulting need to increase storage or transportation costs.
5 Actions for Overcoming Challenges
The challenges may appear daunting, but they are not insurmountable. A well-thought-out five-point plan of action may help mitigate risk and remove obstacles on the path toward achieving emissions-reduction goals.
1. Prepare. Set up a team with representation across the organization. It is essential to have executive leadership buy-in and to include stakeholders from various departments to ensure both organization-wide acceptance of and alignment on the initiative.
Next, determine the operational boundaries for Scope 3 emissions; which of the 15 categories defined in the GHG Protocol are in the organization’s scope; and who within the organization is accountable for each.
2. Educate. Once the operational boundaries have been set, the procurement/supply chain organization should assess which emissions come from external partners. By using the spend-based method to calculate Scope 3 emissions, organizations will quickly find emission hot spots in their supply chains.
From there, organizations can determine where to gather more accurate emissions data from more precise approaches, such as average data or supplier-specific methodologies. Learning what others in the sector are doing, what stakeholders and customers expect, and which laws apply may help identify gaps as well as opportunities to get ahead of the competition.
3. Set targets. With an understanding of the data, metrics, and benchmarks, organizations should collaborate with suppliers to set meaningful, actionable, quantifiable targets. These targets should also be ambitious, as that will foster innovation in the search for solutions.
Organizations should use their targets as criteria when selecting suppliers; focus on supplier-relationship management to sustain momentum for the initiative; and adjust targets as they and their suppliers gain greater insights from data and incorporate more partners.
4. Engage. As supply chains can be extremely complex, it’s best practice to first target certain suppliers. Implementing an average data method, which uses volume and quantity data to determine emissions by unit, may provide more accurate insight for decision making than what can be gathered with a spend-based method. Other criteria might include the suppliers’ size and importance to the organization, whether their emissions-reduction strategies align with the organization’s, and which categories contribute the most to the supply chain’s GHG emissions.
Knowing where and with whom to start engaging allows for more efficient use of resources and the potential of quick wins: working with targeted suppliers to collect supplier-specific emissions data and determine their progress on reporting emissions, any of their targets, and any strategically aligned metrics that can help the organization track progress toward its goals. To do this efficiently, with an audit trail, organizations may need to upgrade their procurement technology suite.
5. Expand. After making inroads with a targeted list of suppliers, organizations should consider expanding their programs further along the supply chain. It’s beneficial to categorize suppliers based on progress with their emissions reduction targets, from those with solid GHG-reduction strategies and effective reporting to those that are unsustainable.
Technology is vital in enabling this process, and organizations need to work within a technological ecosystem to efficiently collect data, run analysis, and draw insight to make decisions based on suppliers. These categories highlight where opportunities lie for co-innovation or training and for identifying new partnerships with suppliers whose goals more closely align with the organization’s GHG-reduction goals.
Succeeding with Supply-Chain Data
Committing to reduce GHG emissions or become a net-zero emitter is easier than fulfilling that goal. To succeed, it’s essential to have access to supply-chain data and to integrate tools into the procurement technology suite, because you can’t manage what you can’t measure. Knowing which challenges it faces and having a plan to counter them can increase an organization’s chances of success in meeting its long-term sustainability targets.
Learn how GEP can help your organization achieve Scope 3 emissions targets.